Friday, October 6, 2017

Hurricane Distorted Jobs Data Cap Turbulent Week

Equity markets ran up yet again this week to fresh highs before Friday’s
September employment report induced some minimal profit taking. Outside of
Friday's jobs numbers the economic data remained unambiguously strong;
headlined by the highest ISM non-manufacturing composite since 2005. The
September jobs report did suggest wage inflation may be taking hold as
unemployment rates continue to dwindle. The figures came on the heels of a
plethora of Fed speak which seemed to indicate Fed officials were gaining
confidence in their ability pull the trigger and raise rates in December. Rates
moved up and Treasury curves steepened while the US Dollar regained some upside
momentum. The Pound came under pressure as Brexit concerns, and in particular,
the fate of PM May weighed on traders psyche. Spanish stocks weighed on Europe
as uncertainty surrounding Catalonia resulted IBEX weakness and a modest
widening of peripheral yield spreads. WTI crude futures stumbled, dipping back
below $50 and under the 50-day moving average even as another tropical storm,
Nate, approached the Gulf of Mexico. Copper prices broke back above the 50-day
moving average to the highest levels in more than a month, helped by a dearth
of headlines out of China as markets were closed for Golden Week. In Washington
DC, Republicans continued to press the case for tax cuts while speculation
swirled surrounding the fate of Sec of State Tillerson. Democrats called for
renewed gun regulation in the wake of Las Vegas suffering the worst mass
shooting in US history. The VIX drifted lower yet again nearing the 9.00 mark
midweek and overall stock volumes remained notably soft. For the week the DJIA
gained 1.6%, the S&P500 was up 1.2%, and the Nasdaq added 1.5%.

In corporate news this week, September auto sales topped expectations, helped
by hurricane replacement purchasing and consumer demand for trucks. Tesla
reported its all-time best quarter for its Models S and X deliveries, but Model
3 production numbers disappointed due to bottlenecks, though the company
maintains there are no fundamental issues with the supply chain. Costco
reported a Q4 beat on top and bottom line, but Wall Street was concerned about
gross margins and membership numbers. Kellogg announced it would acquire the
maker of RXBAR protein bars for $600M in a move to appeal to more
organic-oriented consumers. Netflix raised prices on its two most popular plans
in the US, changing the standard package to $10.99/mo and the premium service
to $13.99/mo.